With the equilibrium transition path in hand, we can calculate both households’ welfare
levels and compare them to their values in the initial steady state. Converting these utility
differences into permanent percentage changes in both goods required to achieve the new
utility level allows an interpersonal comparison of these gains. In principle a given household
could lose from the reform because the terms of trade move adversely, but in fact both
households benefit. The Saver’s utility gain equals 2.02 percent of consumption, while the
borrower’s is an order of magnitude lower, 0.26 percent.